BLANTERWISDOM101

The Importance of Ensuring Quality of Trading Execution

Thursday, January 17, 2019


When talking about trading, a great strategy is indeed important. But the quality of order execution also has a crucial role in determining the level of your success. Requotes, rejections or delays in order execution will greatly affect the trading plan, even your profitability.

Quality Trading Execution


Market volatility and rapid price movements do offer opportunities for experienced traders, however, the speed and reliability of trading execution performance at your broker can affect the accuracy of transactions at the desired price. If the market moves beyond expectations, the level of order execution may not be the same as the price level you ordered; this is what results in Slippage. For example, a buy order can be executed at a price higher than it should be, or a sell order can be triggered at a level lower than the price of your order.

Slippage is often caused by price fluctuations. Generally, the order will be executed when your order is delivered to the brokerage system. If there are no significant fluctuations, the order can be executed at the order price. However, if prices fluctuate quickly, there are often situations where prices have moved first to a different level than the entry order, before your order is actually delivered to the brokerage system.

Therefore, the delay in trading execution will further add to the uncertainty in your transaction costs. In this case, every millisecond of course means. Moreover, changes in prices on the currency market can be updated 100 times per second. So the faster your order is executed, the lower your risk of experiencing Slippage.

However, Slippage can also occur due to certain algorithms that allow the broker to review your transaction before executing it, then change the order according to his wishes. This practice is of course controversial, because it authorizes the broker to delay or even reject your transaction, even though the order has been recorded at a certain price. It is very important to make sure your broker does not take action like this.

To ascertain whether you have received prime trading execution, what needs to be considered? Here's the description:

1. Average Trading Execution Time

Note that the average duration of execution should have reached milliseconds, not just in seconds. To get this kind of execution speed, you can choose a broker with institutional trading technology that can offer an average execution time of less than 0.001 seconds.

2. Order Amount Executed Right at (Or Better Than) Order Price

It is also important to review the percentage of transactions executed at the order price, or at more favorable prices. The maximum target in this case is of course 100% according to the price of the order. However, due to unexpected market conditions, the 99% level can be determined as the best percentage standard in determining the quality of order execution.

3. Requote and Reject Orders

Requote and reject orders can have a negative impact on the level of success of your trading. So, make sure your broker doesn't review or make other forms of intervention on your transaction, because it can result in delay orders, preferential queues, denial of execution, etc.

Overall, you should look for brokers who are fair and transparent, especially in terms of trading execution and pricing models. Every trader is different and definitely wants a broker with varying preferences. However, looking for regulated and reputable brokers who can leverage technology and sophisticated analytical tools with superior trading execution is a wise choice that applies to all traders.

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